BUS2404

Legal & Ethical Environment of

Business

Instructor: Ms Farihah Kabir

Master of Business (Monash University, Australia)
 Contract Law
Modern business is mostly built on the law of
contract. The Contract act 1872 governs the law of
contract in Bangladesh.
The Act came into force in the then Bengal on 1
September of 1872, and was adopted in Bangladesh
without change meaning this is one the core
legislations that we have inherited from the colonial
regimes. It contains the common rules relating to
contracts.
 Contract Law 1872
• A contract is an agreement that creates rights and obligations
that can be enforced in law
• Section: 2(h) states that an agreement enforceable by law is a
contract
• Proposal + Promise + Consideration + Agreement + Enforceable
= Contract
• Any offer or proposal is the first step of agreement/contract
• Section: 2(c) states that the p e r s o n m a k i n g th e p r o p o s a l is
called the ‘promisor’ and the p e r s o n ac c e p ti n g th e
p r o p o s a l is called the ‘promisee ‘
 Contract Law 1872
• Consideration – is a technical term used in the sense of getting
something in return
• Formal definition of consideration – Consideration is a promise,
performance, or forbearance bargained by a promisor in exchange for
their promise
• Consideration is an essential element to make a contract. It must be
provided for a contract to be legally binding.
• Section: 2(e) states “every promise and every set of promise, forming
the consideration for each other is an agreement.
• Agreement maybe of two types:-
- Agreements enforceable by law
- Agreements not enforceable by law
• “ All contracts are agreements, but all agreements are not contracts”
Essential Elements of
a Valid Contract
An agreement becomes enforceable by law when it
fulfills certain conditions
Essential elements of a contract
1. Offer and acceptance - In order to create a valid contract, there must be a 'lawful offer' by one party
and 'lawful acceptance' of the same by the other party. Offer and acceptance does not always need to be
expressed orally or in writing.
-Definition of offer: an expression of willingness to contract on certain terms made with the intention that it
shall become binding as soon as accepted by the person to whom it is addressed, the “offeree”
- exp r e s s io n referred in this term, may take different forms letter, newspaper, fax, email and even conduct,
as long as it communicates the basis on which the offeror is prepared to contract
2. Intention to create Legal relationship – There must be an intention (among the parties) that
the agreement shall result in or create legal relations. Ex – an agreement to dine at a friend’s house is not an agreement
intended to create legal relations and is not a contract
3. Lawful Consideration – an agreement is legally enforceable only when each of the parties to it gives
something and gets something. Consideration maybe past, present or future.
4. Capacity of parties - The parties to an agreement must be competent to contract. If either of the parties
does not have the capacity to contract, the contract is not valid. According the following persons are incompetent to
contract.
(a) Minors,
(b) Persons of unsound mind, and
(c) persons disqualified by law to which they are subject (section 11)
Essential elements of a contract
5.Free consent – In order to be enforceable, an agreement must be based on the free consent of all the
parties. There is absence of genuine consent if the agreement is induced by coercion, undue influence, mistake,
misrepresentation and fraud.
- Section 15. "Coercion" is the committing, or threatening to commit, any act forbidden by the Penal Code or the
unlawful detaining or threatening to detain, any property, to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement.

- Section 16. (1)A contract is said to be induced by "undue influence" where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and uses that position
to obtain an unfair advantage over the other.
(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in
a position to dominate the wil l o f an o th e r -
(a) where he holds a real or apparent authority over the other or where he stands in a fiduciary relation to
the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by
reason of age, illness, or mental or bodily distress.
 FRAUD
17. "Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent,
with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:-
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.

MISREPRESENTATION
o 18. “Misrepresentation" means and includes–
(1) the positive assertion, in a manner not warranted by the information of the person
making it, of that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage to the
person committing it, or any one claiming under him, by misleading another to his prejudice
or to the prejudice of any one claiming under him;
(3) causing, however innocently, a party to an agreement to make a mistake as to the
substance of the thing which is the subject of the agreement.
 MISTAKE
Section 20. Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the
agreement is void.

Ex – A contracts with B for purchasing goods coming by ship. However, unknown to both, the ship has already drowned at the time
of contract. There was a mistake of a fact, which lead the parties to consent, therefore the contract is void.
6.Legality of the object –The object for which the contract has been entered into must
not be fraudulent or illegal or immoral or opposed to public policies. Ex- contract to sell
guns/illegal items or commit robbery

7. Certainty – The agreement must not be vague. It must be possible to ascertain the
meaning of the agreement, for otherwise it cannot be enforced.

8. Possibility of performance – the agreement must be capable of being performed. A

promise to do an impossible thing cannot be enforced. A promise to do an impossible thing
cannot be enforced

9. Void agreements - There are certain agreements which have been expressly declared
void by the law. ( Agreement in restraint to marriage section 26, agreement in restraint of
trade section 27, agreement in restraint of proceedings section 28, agreement having
uncertain meaning 29An agreement which is not enforceable by law is void.
Essential elements of contract
(continued)
10. Legal formalities - Oral contract is a valid contact. A contract regarding
the transfer of immovable property must be registered. In Bangladesh under
the Registration Act 1908, writing is required in cases of lease, gift, sale, and
mortgage of immovable property. The terms of an oral contract are
sometimes difficult to prove. Therefore, important agreements are usually
entered into writing even in cases where writing is not compulsory

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thank you!!
questions?